FDI in Retail

India further eased foreign investment rules in retail on August 1 in a renewed attempt to attract global supermarket chains like Wal-Mart Stores Inc and Tesco.

Foreign retailers have been keen to enter India's $500 billion retail market since the country allowed overseas investment in its supermarket sector in September 2012 but ambiguity around entry rules has kept them away.

The issue also remains politically controversial because of worries that millions of small shopkeepers could go out of business and India has so far not received a single application from any global retailer.

Following are the key highlights of India's efforts to reform retail sector.

• November 2011 - India allowed foreign supermarket chains to enter the country and own up to 51 per cent in their Indian operations in an attempt to bring in much needed capital from abroad and build its poor infrastructure supply chain.It also allowed single-brand retailers like Swedish furniture giant IKEA to own 100 per cent of their business in India.
• December 2011 - The government put the retail reform on hold, backtracking from its boldest measures in years in the face of political backlash from allies and opposition parties over worries that millions of small shopkeepers could go out of business.
• January 2012 - India formally eliminated ownership restrictions on foreign investment in single-brand retail but required that companies source 30 per cent from small local firms.
• June 2012 - New Delhi began clearing the ground for a new push to open up the supermarket sector amid souring investor sentiment, double-digit food inflation and the threat of a credit-ratings downgrade.
• September 2012 - India revived the retail reform, allowing foreign supermarkets to buy up to 51 per cent in a local partner with restrictions around sourcing and investment in an effort to appease political opposition. Local sourcing requirements for single brand retailers were diluted.
• June 2013 - The government issued a clarification and said global supermarket operators cannot acquire existing assets of Indian companies and that the initial mandatory $100 million investment to set up supply chain infrastructure and stores must be in new assets.
• August 2013 - India relaxed sourcing and investment rules for supermarkets. It allowed retailers to meet 30 per cent sourcing requirement over 5 years initially and said they only have to invest 50 per cent of an "initial" mandatory investment of $100 million in setting up cold storages and warehouses.

Following are some facts on the retail sector in India:

India's population is around 1.2 billion and the retail sector sees annual sales of $500 billion, with nearly 90 per cent of the market controlled by tiny family-run shops.

Organised retail makes up less than 10 per cent of the market but is expanding at 20 per cent a year, driven by the emergence of shopping centers and malls and a middle class of close to 300 million and whose numbers are growing at nearly 2 per cent a year.

India allows full foreign ownership in single-brand retail and cash-and-carry or wholesale ventures. It allows 51 per cent ownership in supermarkets.